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Suppose that the principal of a synthetic CDO is $125 million. The equity, mezzanine, and senior principals are $10 million, $25 million, and $90 million
Suppose that the principal of a synthetic CDO is $125 million. The equity, mezzanine, and senior principals are $10 million, $25 million, and $90 million respectively. Which tranche(s) is responsible for payouts of $7 million due to defaults by companies in the portfolio? Which tranche(s) is responsible if those payments rise to $14 million?
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